A statement from the Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts:

The department’s handling of the West Coast franchise was a first class fiasco. It has left the government’s entire policy on rail franchising in disarray, as a further three competitions have had to be put on hold. The total cost to the taxpayer of putting it right is currently unknown but is likely to be significant. The cost of staff and adviser time for the cancelled competition and subsequent reviews is in excess of £6 million.

The department blundered into this major and complex competition for one of the biggest franchises in the country without even knowing how key parts of its policy were to be implemented. Bidders were invited to tender before the department knew how it would calculate companies’ capital needs. The department placed extraordinary reliance on a model that was not fit for making commercial decisions and had not been sufficiently scrutinised. Predictably, this left it wide open to legal challenge from bidders. To date, the department’s legal costs of defending its decision to award the contract to First Group have reached £2.7 million.

The department’s conduct was characterised by haste, confusion and weak internal and external communication. However, the ultimate failure of this competition was sealed by a rich mix of the department’s feeble and forever-changing management and almost non-existent oversight.

The department desperately needs to learn the lessons from what went so badly wrong with its running of a competition affecting over 300 train services a day. Therefore, it must immediately install proper project and programme management. It needs to pin down what technical tools and models it needs before moving forward with future competitions. The department’s miserably inadequate oversight and governance arrangements simply must be strengthened and it must look to learn the lessons from other sectors such as regulators.